Squandering Inheritance: How India slide into the morass

The first wake-up call for the United Progressive Alliance (UPA), keen to shower entitlements on an India it believed was not Shining, came in early 2007.

Food grain prices started shooting up.

Received wisdom places the start of the food price spiral a year later, but grains went up 15 per cent and all foods by 11 per cent in 2007.

I had addressed a farmers' meeting in April 2007 on ABCD (atta-besan-chawal-daal) inflation. A global supply contraction affected India as well, but our economic wizards chose to treat it through their monetary policy toolkit designed to control demand. The alarm met with a snooze response.

The rash of farmer suicides in Vidarbha and Andhra Pradesh that year also tragically highlighted agrarian distress.

The government responded to the deep-rooted structural problems by offering a palliative of a one-time debt-waiver of Rs 52000 crore to 40 million farm families.

In its avowed quest for inclusiveness, it also committed simultaneously to spending Rs 20000 crore annually on 5.5 million families of government employees and retirees.

States had to follow suit, staring at bankruptcy, but overdrafts from the central government could come to their rescue!

While one hand of the government tightened money to control inflation, the other opened the floodgates.

Two fortuitous (but unintended) results ensued.

Image: Family members grieve over the body of Kontam Srinivas, a 26-year-old farmer who committed suicide by consuming pesticides in Chatapally village in Andhra Pradesh in this 2009 file photo.